Fed Surprises Market With A 50 Basis Point Rate Cut

Wow, is everyone surprised. The geniuses said a quarter point cut and some said the Fed would do nothing (not as many). Maybe the Fed is more worried than we thought. In a surprising move, the FOMC unanimously cut the fed funds rate by 50 bps to 4.75%.

The market surged on this news, with financials leading the way. The banks and broker index were both up +3.75%. The DOW surged +335 points.

We think the Fed felt it needed to throw a lifeline to the housing/mortgage market, and if they were just going to cut again in a couple of months, why not do a full 50 bps right now?

Of course, sentiment has been terrible, and the put/call ratios have continue to soar. So you can bet that a lot of this fuel we are seeing in buying power is due to a healthy dose of short-covering. Not a fun day for the bears.

Here are some of the highlights from the FOMC release:

* FOMC cuts fed funds by 50 bps to 4.75%
* Fed cuts discount rate by 50 bps to 5.25%
* Fed says inflation readings have 'improved modestly'
* Fed says rate cut to 'forestall' harm to broader economy
* Fed says financial conditions increase uncertainty to outlook
* Fed says tightening of credit conditions has potential to intensify housing correction, restrain growth